tv Nightly Business Report PBS April 12, 2010 6:30pm-7:00pm EDT
>> susie: the two most powerful men on the planet meet to talk trade; president obama and chinese president hu jintao focus on the tensions surrounding the u.s.-china trade relationship and china's currency. >> tom: we talk with two china experts, and hear from a chinese factory owner about what currency changes would mean for him. you're watching "nightly business report" for monday, april 12. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
>> tom: susie, there's been a lot of anticipation about that one-on-one between obama and hu, and how they will work through tensions between the two countries. >> susie: high on the agenda: trade issues and getting china to loosen its hold on its currency, the yuan. the u.s. has been working behind the scenes to get china to raise the value of the yuan against the u.s. dollar. joining us now to talk more about u.s./china relations, david hale, chairman of his own firm, david hale global economics; and donald straszheim, head of china research at the international strategy and investment group. gentlemen, welcome to the program. don, let me begin with you. before we get into the details of what china might or might not do about its currency, tell us why a revaluation-- revaluation of the chinese currency is so important to the u.s. economy. >> well, it's the exchange rate between the goods that we buy from china to import
here and the goods that we sell to china that they buy from us. and the u.s. and china are the g -- the most important economies in the world, the most important bilateral economic relationship. and anything that affects it this relationship affects jobs, it effects inflation, growth, that's why it is central. >> david s that how you see it and what's in it for china? >> well, the odds were very high that china would have revalued its currency because it has a growing inflation problem. the a a year ago the inflation rate was negative n april it is 3% and by june or july it could be 5%. china has a good reason to revalue in the next few months because of inflation. in the u.s. the pressure for revaluation is concern about trade competitiveness. but because china's exchange rate has been pegged to the dollar over the last 18
months, after rising 20% over the previous three years, this is a kind of mercantilism and gives china an unfair trade advantage. >> now a lot of people are of the view that if china reval-- revalues its currency, this could mean wror jobs will stay in the u.s. is that the case? >> it's very unlikely for the simple reason that china is the final assembly point in a global supply chain. if you decompose chinese exports you will find that 80% of the value-added to other asian countries, to korea, taiwan, japan, malaysia, countries supplying china with components for finished goods, so if you revalue the chinese currency 5 or 10% it will simply lower the cost of chinese imports by 5 or 10%. if china were more dependent on its own components or self-sufficient, the exchange rate or valuation could mean more but if the con choice context it won't mean very much at all because it is part of a
global -- >> don, let me go to you about the revaluation. are you saying it is going to happen. you think it's going to happen but it's going to be a very gradual process. tell us how the process would work. and what is the time line here. >> well, i think this will happen, susie, i guess if i had to put a date on it i would say june 1. >> okay. >> there is the meeting right now going on in washington. then there is the strategic economic dialogue that happens in beijing in late may. then there's the g-20 meeting in june on the 20th of june. i think in that time period china will allow the currency to again gradually begin to appreciate. at's a dimmer switch. it's not an on-off light switch but they'll start the process at that time and then it will proceed for some indefinite time in the future. >> and how much are we talking about. how much of an appreciation
in the exchange between the u.s. dollar and the chinese yuan. >> i think about 3% for the remainder of this year, and probably another 5% for 2011. that's not a lot in some sense. people think it could move much farther than that. but it is an important start. and key is that the exchange rate is increasingly going to be determined by the markets. not by a committee of bureaucrats in beijing. let me get david in on this. first of all, 8% f that is ultimately the number, how much of an impact is that going to have. and what does this mean for american businesses doing business in china? david? >> well, first, i think it could be 5% this area, not 3%. then again 5% every year for the next two or three years. and what it will mean is it will modestly increase the cost of chinese goods. it will raise the price of wal-mart. that will be bad for local americans. because there is no doubt china's disinflationary affect on prices has been
very, very benign for americans with low income. and that's why wal-mart should be called china part. >> all right. dun, let me just get you in. what impact will this have for american businesses and for the american public? >> well, i think most important is it indicates that america and china are again trying to work together. there is a lot more we have in common with the chinese. and they with us. then in conflict. anything that improves our relationship, makes it tighter is a good thing, long-term for our growth for global stability, jobs, inflation and all the rest. >> all right, we're going to have to leave it there, unfortunately, gentlemen, we've run out of time. but i do appreciate both of you coming on and sharing your thoughts with us. >> you bet. >> my guests tonight david hale hale. and donald straszheim of the isi group. >> tom: this weekend, before
hu's visit to washington, china did something it hadn't done in almost six years-- reported a trade deficit. the asian nation said it brought in $7.25 billion more stuff in march, than it sent out. beijing says that shows the value of the yuan is not skewing trade in its favor, as some u.s. lawmakers argue. from china, nick mackie reports, watching commodity imports may hold the key to the currency policy. >> reporter: with 600 employees and $1.5 million in annual sales, jiashan shanghong makes in-store shelving for the likes of walmart, tesco, and ikea. exports account for 20%. and the company's president, zhang chunhua, says at this level, a gradual appreciation of the r.m.b. will have little impact on his business-- especially on sourcing. >> ( translated ): we still have some components imported from abroad. but we buy our steel on the domestic market, so the currency exchange rate has little impact on us. >> reporter: that is, not directly.
the price of all this steel is greatly influenced by china stoking demand and the r.m.b.-dollar exchange rate. china is now the world's biggest buyer of iron ore, importing 59 million tons in march alone. it's also consuming vast quantities of copper and crude. and this is driving up commodity prices, which helps explain why china's first quarter global trade surplus shrunk 76.7% year- on-year, dragged down by a march deficit. china's appetite for imports is primed by its half a trillion dollar stimulus package which is spurring demand, narrowing the trade balance, but now stoking inflation. and these huge inward flows of oil, minerals, and metals are priced in dollars, not the chinese r.m.b. in march, even imports from america rose 43%, though the u.s.-china trade balance still ended up almost $10 billion in china's favor. but beijing is more concerned
about inflation, which in february hit a 16-month high of 2.7%. in the 1990s, price hikes sparked urban riots. the government could act by tightening credit, and as standard chartered bank economist li wei notes, there's also the anticipated option to revalue the r.m.b, or chinese yuan, the c.n.y. >> if the global commodity price continues to edge up, then that could give more reasons for the chinese government to allow the c.n.y. to appreciate against the u.s. dollar. >> reporter: this would make imports cheaper, and if the costs are passed on, chinese consumers will be better off and so this can boost domestic consumption. but china is just getting over its last revaluation, when it allowed the r.m.b. to rise 21% between 2005 and 2008, leaving low end, labor intensive factories operating on low, single-digit margins. for the government, it's a delicate balancing act.
nick mackie, "nightly business report", zhejiang province, china. >> tom: here are the stories in tonight's "n.b.r. newswheel". wall street started the week closing above dow 11,000, but not by much. the dow added eight points, the nasdaq rose nearly four, and the s&p 500 gained two points. big board volume was up slightly from friday's levels, but nasdaq volume was a little lighter. the group that decides when recessions officially start and end says it's too early to say whether the u.s. economy has pulled out the downturn. the national bureau of economic research says while the data looks strong, it is not ready to make the call just yet. many private economists think the recession ended last summer. and a big drop in the cost of the financial bailout program helped bring down the nation's budget deficit last month. the march shortfall was just over $65 billion. that's down sharply from last march because the treasury cut its total cost estimate for the tarp plan by $115 billion.
still ahead, april 15 is just around the corner. did you make changes to your roth i.r.a. last year? if so, we'll tell you how to handle it on this year's return as our "tax tips" heads into the home stretch. >> susie: takeover rumors heated up at palm, inc. today. the smartphone maker's shares soared 17% on word the company is getting ready to put itself up for sale. bloomberg reports palm has hired goldman sachs and investment banker frank quattrone as advisors. buyers would get palm's pre smartphone and its web o.s. phone operating system software. the company has struggled to keep up with rivals like blackberry maker research in motion and iphone maker apple. >> tom: microsoft also has been struggling to keep up with apple, rim, and others. the software giant has sold windows for smartphones for many years, but its mobile operating system has been steadily losing market share. so today, microsoft kicked off what it says will be a year of smartphone launches, starting with what it calls the kin.
as scott gurvey reports, the kin is aimed at a very specific kind of user. >> reporter: the kin is a phone-- actually there are two models-- designed specifically for the social networking crowd. you can reach your friends on twitter, facebook, and myspace on the popular apple iphone, rim's blackberry, and the motorola droid smartphone. but you usually have to use a separate app for each. the kin shows them to you all at once; it even differentiates between casual contacts and close friends. it makes it easy to share their experiences and broadcast your own, including swapping photos and video. microsoft's robbie bach says the kin plays to a key market. >> there is this emerging segment called social networkers that really push the limits of what we do with technology, and certainly what we can do on a phone. and so we chose to take the same windows phone technology and focus it uniquely and explicitly on the social networkers. >> reporter: while the kin is a
niche player, microsoft will rollout windows mobile seven phones later in the year. those phones will compete directly with the iphone, droid, blackberry, and other smartphones. moringstar analyst toan tran, says as mobile computing and smart phones collide, the major players can't afford to miss out. >> the mobile opportunity is one of the biggest technology opportunities in the world. over a billion handsets are sold each year and you're seeing companies like apple just make billions and billions of dollars in profits from it. and it's definitely a market that microsoft has to address and has to address much better than it has been historically. >> reporter: for verizon, the strategy is different. the kin will be a verizon wireless exclusive for now, as is the motorola droid. but verizon's john harrobin says his company will continue to offer products from all the major venders. >> the kin is designed for the social networker, and it's designed very well for that social networker, so we are excited to offer that. we don't hang our results on one device.
we make sure that we're not relying on just one device to meet out customer's needs or to produce our results. >> reporter: one device everyone in this space is closely watching is the ipad. they're waiting to see how well apple does with its next generation of mobile computing. several manufacturers have slate-like devices in development, but so far none have launch plans just yet. scott gurvey, "nightly business report", new york.
>> so tom we finally got dow 11,000 but just limped along to get there. but i understand still there was a lot of action behind the scenes today. >> absolutely, most importantly we're at a new post recession high for the dow industrials with this move over 11,000. so susie, let's take a look at tonight's market focus. fueling the run above 11,000 for the dow today, economically sensitive stocks and financials. the index was led by caterpillar's better than 2% gain. american express hit a new 52-week high. alcoa rose ahead of its earnings, which we'll get to in a moment. and chevron rallied to its highest price since january. now those alcoa earnings, kicking off first quarter reporting season. stripping out the one-time and restructuring charges, profit came in at a dime a share, in line with expectations. but revenue was lighter than expected.
still, alcoa says its markets are gradually improving. the stock has yet to regain the level it was at before its fourth quarter results back in january. mondays are living up to their reputation for merger announcements. electricity generators mirant and r.r.i. energy are teaming up. the market likes the combination with both stocks rallying nicely. the two sell their electricity based on market prices and they don't own public utilities. at the closing prices, the deal values mirant at $12.84 per share. by the way, the new company will be called genon energy. this deal is as much about natural gas as it is anything else. as prices have dropped, along with electricity demand, so has the market price of electricity. the deal allows mirant and r.r.i. to combine headquarters and other systems, saving money. there's a couple of other deals
in energy, these rooted in oil. conoco phillips is getting more than $4.6 billion for its stake in a canadian oil sands development. china petroleum and chemical is the buyer. it's the biggest energy purchase of a government backed chinese firm in north america. conoco shares hit a new 52-week high. oil services giant halliburton will get bigger with its proposed purchase of oil and nat gas well services firm boots and coots. it's a $232 million cash and stock deal valuing boots at $3 per share. private equity was back buying in the market, this time a transportation and military logistics firm. dyncorp is the target. cerberus capital is the buyer. almost $1 billion is the price tag, or $17.55 per share. dyncorp has 28 days to find a better price for shareholders if it can. just a month ago, some were leaving palm for dead. in fact two analysts cut their price target to zero in march after a sales drop and
disappointing outlook. as we mentioned earlier, palm is exploring a possible sale. with more than 130 million shares, palm stock was the most actively traded issue on the nasdaq. a.i.g. continues to find new buyers with the stock tonight sitting at its highest split- adjusted price since october. today's better than 8% rally comes as the wall street "journal" reports another cloud of uncertainty may be removed. its derivatives a unit has gotten out of most of its mortgage related trades with goldman sachs that went sour. speaking of stocks trying to get back from the brink, check out mortgage insurance firm ambac financial. this is a five-day chart. last thursday, it was 64 cents. today it's over $2.25. today's rally takes shares to a 52-week high. the buying follows last week's fourth quarter earnings report which showed a profit, thanks to a tax benefit. and finally, one stock living up
to its name: catalyst pharmaceuticals. this is a micro cap company, a market cap of only $34 million. and that's after today's rally saw the stock price more than double and extremely heavy volume. it has two drugs in development to treat drug addictions. and that's tonight's "market focus". >> susie: the treasury department is going to be busy over the next month and a half, unloading more of the warrants it got when it bailed out big banks in 2008. the agency will hold six auctions over the next six weeks, selling off warrants from wells fargo, p.n.c. financial,
comerica, and three other banks. the moves will close out uncle sam's holdings in those firms. warrants let the holder buy stock in the future at a fixed price. >> tom: here's what we're watching for tomorrow. we'll get an update on what goods are coming in and going out of the u.s. when we see february's trade numbers from the commerce department. also tomorrow, big banks start reporting quarterly earnings this week. their stocks are outperforming the market, but could face major headwinds later this year. we'll take a look. >> susie: general motors is accelerating its development of electric cars. today, the automaker announced plans to double the size of its lab that makes batteries for those vehicles. the $8 million expansion lets g.m. test batteries in house instead of sending them to an outside contractor. the expanded lab should open this summer. by december, g.m. plans to begin selling its electric chevy volt. >> tom: it looks like exchange traded funds are a hit for
charles schwab. its e.t.f. assets under management just passed the $1 billion mark after launching only five months ago. the jump in e.t.f. assets were helped by schwab's recent offer of free trades on some of those funds, matching offers from rivals. e.t.f.s were once almost exclusively held by pension funds, hedge funds, and other professional investors, but they've gained acceptance with many financial planners in the past decade.
>> susie: the clock is ticking; the deadline for filing your federal income taxes is this thursday, april 15. with just three days to go, we're here to help. our tax guru kevin mccormally has his tax tips every night until the deadline. he's editorial director at kiplinger's personal finance. tonight, kevin takes on the i.r.a. do-over. >> i've been hearing from viewers who followed some of my advice last year, and feel i steered them wrong. at issue are roth i.r.a. conversions made in 2008 that lost a lot of money. i pointed out that you had until october 15, 2009, to declare a do-over and pretend you never made the conversion. the advantage is that while you have to pay tax on every dime converted from a regular i.r.a. to a roth, if the conversion retroactively disappears-- using
a method the i.r.s. poetically calls recharactrization-- so does that tax bill. if you already paid the tax, you get a refund. and, it really does work. but the cries of anguish i'm hearing are from taxpayers who undid roth conversions in 2009 and have received 1099 forms reporting the amount sent back to the regular i.r.a. as a distribution. do they have to pay tax on that money? of course not. but anytime money leaves an i.r.a., the i.r.s. gets a report. and you need to report the distribution on your tax return. it goes on line 15(a) of the 1040. but it's line 15(b) for reporting the all-important taxable amount of the distribution. and, when a recharacterization is involved, that amount is zero. if you recharacterized 100% of the earlier roth conversion, you don't need to send in any extra forms. if you undid only a part of the conversion, you need to file a form 8606 with your return. in either case, include a note
explaining the recharacterization. complicated? yes. but the tax savings are worth it. i'm kevin mccormally. >> tom: that's "nightly business report" for monday, april 12. i'm tom hudson. goodnight everyone and goodnight to you too susie. >> susie: good night tom. goodnight everyone, we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org